The First Crack in the Wall

Written By: Glenn Michaels, Op-Ed Writer

For many years all FHA mortgage loans were manually underwritten and then with artificial intelligence and automation, FHA shifted to automated underwriting.

The FHA developed “TOTAL” to be used in conjunction with Fannie Mae’s Desk Top Underwriter (DU) or Freddie Mac’s Loan Prospector (LP) to underwrite FHA mortgage loan s except for FHA Streamline refinances and for borrowers with no credit history.

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As a seasoned underwriter I have seen many FHA loans approved by “TOTAL” and by DU or LP with ratios in excess of the benchmark ratios. In addition many loans that showed some assets were more readily approved than loans that did not have a lot of assets. Loan officers and processors are able to make adjustments to the file in order for the AUS system to approve the loan subject to validation and manual underwriting.

The FHA on January 31, 2013 issued Mortgagee Letter 2013 – 05 that require FHA loans with a decision credit score less than “620” and with a DTI greater than 43% for case numbers assigned on or after April 1, 2013 to be downgraded to “Refer” and be manually underwritten.

The Direct Endorsed underwriter (DE) now must underwrite these files manually and give the justification for loan approval with proper documentation to support the approval and indicate the compensating factors for approving the mortgage loan.

This is the first crack in the wall, is FHA shifting back to manual underwriting?

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Time will tell, however many FHA loans that were underwritten using an AUS system and Total have been approved with qualifying ratios way in excess of the benchmark ratios. It is not uncommon to see FHA loans approved by an AUS as high as 60% - 65% while the book’s benchmark ratios are 31% for housing and 43% for the Debt to income (DTI).

To learn more about this rule change and any others go to either the FHA Connection or to

About The Author

Glenn Michaels - As an op-ed writer, Glenn Michaels is a mortgage underwriting instructor for CampusUnderwriter ( As a BBA & FHA DE Underwriter, Glenn is a Pace University graduate who also graduated from New York University’s School of Mortgage Finance. Glenn has conducted numerous training classes and has worked in the mortgage banking industry for 38 years. 

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